The government only has a "limited understanding" of the impact of budget cuts on local authorities in England, a public spending watchdog says.

Some councils were showing "clear signs of financial stress", but many had "coped well" with cuts, said the National Audit Office.

The government said every part of the public sector had to do its bit.

Labour said ministers had taken most funding away from areas with the greatest need.

And the Local Government Association warned services would "buckle under the strain" of more cuts.

Reduced services

Most local authority funding comes from central government, with about a quarter raised through council tax.

By 2016, government funding will have dropped in real terms by 37% since 2010, the National Audit Office said.

While councils had tried to protect spending on social care, services like housing and leisure and culture had been given deeper cuts, it said, with "some evidence" of reduced services.

Auditors are "increasingly concerned" about councils' ability to make more savings, the report said, with over half of authorities responsible for education and social care not well placed to provide the services they hope to over the next three to five years.

The report said there were "significant differences" in the size of budget cuts faced by different council areas, with those that depend most on government grants the hardest hit.

It also said the Department for Communities and Local Government did not monitor the impact of spending cuts "in a co-ordinated way", instead relying on other departments for alerts.

As a result, it said, the government risked finding out about serious problems "only after they have occurred".

NAO head Sir Amyas Morse said: "The department really needs to be better informed about the situation on the ground among local authorities across England, in a much more active way, in order to head off serious problems before they happen."

'Satisfaction maintained'

Local Government Minister Kris Hopkins said local government made up a quarter of all public spending.

The government continued to deliver a "fair settlement" to every part of the country, he said.

"The reality is since 2010 budgets have been balanced, council tax has fallen by 11% in real-terms and public satisfaction with local government has been maintained."

Mr Hopkins said councils still had to do more to "cut waste and make sensible savings".

Labour's shadow local government secretary Hilary Benn said: "This report reveals the true impact of the decisions David Cameron's government has made, with housing and leisure facilities having taken the biggest hit."

He said ministers were "out of touch" with the pressures faced by councils.

The LGA said council services had faced deeper cuts than any other part of the public sector.

It said: "This report paints a stark picture of increasing financial risk and uncertainty for local authorities. It shows that central government has not taken a comprehensive approach to assessing the impact of its decisions."